Home prices continue to rise
According to the S&P/Case-Shiller Home Price Index report for May, home prices rose 2.5 percent for the 10-City Composite and 2.4 percent for the 20-City Composite, compared to April. The 10-City index rose 11.8 percent from May 2012 while the 20-City index improved by 12.2 percent, matching data from the National Association of Realtors (NAR), CoreLogic, and the Federal Housing Finance Agency (NAR) for the same time period.
Case-Shiller reports that all cities studied improved not only for the month but the year, with Dallas and Denver reaching record levels, surpassing their pre-recession peak set in June 2007 and August 2006, respectively.
“Home prices continue to strengthen,” said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Two cities set new highs, surpassing their pre-crisis levels and five cities – Atlanta, Chicago, San Diego, San Francisco and Seattle – posted monthly gains of over three percent, also a first time event.”
Blitzer added, “The overall report points to some shifts among various markets: Washington DC is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts.”
Unsustainable appreciation levels
Regarding the Case-Shiller data and NAR’s Pending Home Sales report in June, Danielle Hale, NAR Research Economist said, “Will prices remain resilient in the face of rising mortgage rates? Our indicators suggest that the price level and rate of increase will hold as long as supply pressures remain.”
Meanwhile, Zillow Economist Dr. Svenja Gudell said, “Three straight months of national home value appreciation above 10 percent is not normal, not sustainable and, frankly, not very believable. As the overall housing market continues to improve, the impact of foreclosure re-sales on the Case-Shiller indices continues to be pronounced, as homes previously sold under duress trade again under more normal circumstances, leading to inflated and misleading markups in price.”
Dr. Gudell added, “It’s increasingly critical that the average American homeowner not read numbers like today’s Case-Shiller results and assume their homes must also have appreciated at these levels over the past year, or will continue to appreciate at these levels going forward. In reality, typical home values have appreciated at roughly half this pace for the past several months, which is still very robust. Looking ahead, a combination of rising mortgage interest rates, flagging investor demand and more inventory entering the market will all help to moderate the pace of home value appreciation and stabilize the market.”
Homeownership levels slide, but there is good news
As home prices improve and bring good news to underwater homeowners, the Commerce Department is reporting today that homeownership is at nearly an 18 year low, slipping to only 65.1 percent. The rate peaked at 69.4 percent in 2004 and was 65.2 percent in the first quarter, so while the drop in homeownership for the month is minimal, the residential rental vacancy rate fell four tenths of a percentage point to 8.2 percent, the lowest reading since the first quarter of 2001, down from a peak of 11.1 percent in 2009.
According to the Commerce Department, in the second quarter, the biggest dip in homeownership was with people aged 45 to 54 (falling 0.4 percentage points), followed by homeowners aged 55 to 64 (falling 0.3 percentage points). While this is not good news, the silver lining is that gains were seen in the 65+ age group and the 35 to 44 age group.
What the future holds
These reports offer a mixed bag of results, but most are in line with expectations. Because Federal Reserve Chairman Ben Bernanke’s replacement has not been announced, there remains a great deal of uncertainty and while home prices and mortgage interest rates are expected to continue rising this year, that nominee may have a strong impact on the overall status of housing, so anxiety remains.